GOOG – Will Nest Labs Help Google Take Over the Home?

by Brad Moon | January 14, 2014 12:16 pm

News that Google (GOOG[1]) bought Nest Labs caught me off-guard. Nest Labs had been raising funds[2] to extend its connected home products line beyond the highly successful Nest thermostat and new smoke/CO detector, but I didn’t think Tony Fadell’s startup was looking for an outright buyer.

Besides, even if Nest Labs was hoping to be snatched up, I would have pegged Apple (AAPL)[3] as the most likely match. Nest was founded in 2011 by former Apple senior VP and iPod “father” Tony Fadell, along with former lead engineer for the iPod and iPhone Matt Rogers.

And Nest products look like something Apple would design and have been featured prominently on Apple Store shelves. Long-time Apple board director Bill Campbell is a Nest Advisor. Sure, GOOG has been an early investor, but Nest Labs just had more of an Apple vibe to it.

Clearly I was wrong. Nest Labs will be come a division of Google within the next few months[4], retaining its own brand identity and leadership under Tony Fadell.

So what does Google want with Nest? Well, four potential things that come to mind. Let’s start with three of the less-likely possibilities of why GOOG snagged Nest Labs before tackling the big one.

Google could have bought Nest to:

1. Keep Nest Out of Apple’s Hands

Going back to my initial statement about Nest Labs and Apple, the ties between the two run even deeper, with reports of a stream of Apple staff jumping ship for Nest in recent months. The exodus includes a prominent engineer from Apple’s iWatch team[5]. Buying Nest Labs would not only have netted Apple an entry into home automation with respected hardware and software clearly influenced by its own, but it would have brought valuable engineers back into the Apple fold.

2. Improve Advertising Accuracy

Tony Fadell has already tried to diffuse the rumors, but it’s pretty easy to put two and two together as Wired has. Since the Nest thermostat knows when you’re at home, Google could use that data to sharpen its targeted advertising[6].

3. Save Money at its Data Centers

Data Centers are huge buildings containing row after row of high-powered servers. The computers eat electricity and throw off massive amounts of heat, requiring more power for cooling. And GOOG data centers are among the biggest. One theory raised by SiliconANGLE is that Nest technology and Nest Energy Services (a partnership between power companies and Nest that rewards customers for automated power savings during peak usage[7]) is something Google wanted to cut operational expenses at those data centers[8].

4. Make Android@Home Real

The most likely scenario is that Google sees home automation as an area of future growth and bought Nest Labs because it’s already a leader in this area and is a recognized brand. Nest doesn’t run Android but it plays nicely with it. Plus, it’s not tough to imagine a scenario within a few years where the transition is made and those Nest smart devices are the focal point of a robust home automation offering, powered by Android.

GOOG has been openly gunning for home automation since announcing its Android@Home initiative in 2011. It wants Android to be the framework that controls all the connected devices in your home and your Android smartphone to be the device you use to control and interact with them.

I think everyone is looking for someone — anyone — to take a leadership role in this area. I’ve been experimenting with home automation over the past few years and while the cool factor is high, the fragmentation has been driving me crazy.

I have a collection of Philips (PHG[9]) Hue connected LED lights that have been fantastic. Recently, I had ADT (ADT[10]) upgrade my home security system with a connected components including a door lock, light switches, cameras, smoke detector and thermostat. Again, the results have been good, but these components use the Z-Wave standard and require an ADT app to interact with. I have other scheduled activities like data backups being controlled by computer. I’ve had vendors sending connected gear that uses the Zigbee standard — that doesn’t play with Z-Wave and requires standalone apps.

All of this technology is cool, but having to use multiple apps, with different components that won’t interact with each other because they use different standards, is beyond frustrating. And this fragmentation is keeping home automation and the connected home from going mainstream.

Whoever cracks that nut is going to win in a big way. That’s why Samsung (SSNLF[11]) was so gung ho about its Smart Home initiative at CES 2014[12]. It’s already the world’s biggest vendor of smartphones, it’s one of the biggest makers of Smart TVs and its been selling connected home appliances (like refrigerators, washing machines and even air conditioners) for years. If Samsung is successful in selling Smart Home as the platform to third parties, it could be game over, with Samsung in charge — not Google. These two tech titans have been at odds[13] for a while and the connected home could just turn into their biggest battlefield yet, with Smart Home going up against Android@Home.

No one is saying which of these reasons was the driving one behind the GOOG acquisition of Nest. And while my money is on boosting Android@Home, the others could have been part of the reasoning too.

Either way, if this plays out in GOOG’s favor, there could be real upside for the company in the long term. Image a world where Android powers your home. Your appliances and lighting integrate with your Google calendar and your Android-equipped car[14] talks to your house as you pull into the driveway to turn on your Android-powered TV and switch it to your favorite show. When your furnace filter gets dirty, Google pushes you ads for local hardware stores and furnace maintenance businesses. Your Android smartphone connects you to everything, no matter where you are.

Nest Labs could be the catalyst that makes this world real.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.